Tanzania: credit to economic activities shrink

Lending to major economic activities has declined sending a negative signal of decreased or no new investments registered in the economy.

According to the Bank of Tanzania (BoT) monthly economic report for December, some economic activities hit-hard by credit cut include agriculture, manufacturing, hotel and restaurants and transport and communication activities with the exception of personal loans.

“The fall of bank’s credit flow to major economic activities implies that investors use own sources to expand the existing businesses or establishing new investments,” said Mr Hussein Kamote, the Director of Policy and Advocacy from the Confederation of Tanzania Industries (CTI) while commenting on the BoT report.

He said the adverse impact of all these may be felt in few months to come characterised if the situation remains unaddressed by productivity fall, rising unemployment and declining Gross Domestic Product (GDP).

Also the absence of new credit flow into the existing businesses, implies that no investment in the technology and innovation that affect the whole production chain. “This is not a good scenario to the economy,” he said, adding that the situation also applies to the banks because lending is their core businesses.

The financial statements published on Monday this week show that most banks posted profit increase last year but was lower compared to the corresponding period a year before.

During the period under review, the percentage share of credit extended by banks to major economic activities slowed down with manufacturing registering 18.6 per cent in November from 18.7 per cent in October.

Credit extended to agriculture activities remained at 6.9 per cent in November and October but was down from 7.9 per cent of the corresponding period in 2015. Lending to the trade activities declined to 20.6 per cent from 20.8 per cent in October and 20.9 in the corresponding period.

Also credit to the hotels and restaurants 3.1 per cent from 3.2 per cent and 3.6 per cent in the corresponding period. The annual growth of banks’ credit to major economic activities was negative save for the personal loans.

Credit to the manufacturing sector dropped by negative 4.5 per cent from negative 4.1 per cent in October, transport and communication by negative 3.5 per cent from 5.3 per cent and hotels and restaurants to negative 5.2 per cent from 1.8 per cent in October.

The BoT report shows that the stock of domestic credit was 21.35tri/- in the month under review, an increase of 1.39tri/- from November in 2015 but was less compared with increment of 2.87tri/- in the corresponding period.